It's War: Sumner Redstone Ousts Philippe Dauman From Trust That Will Control Viacom and CBS

Dauman and director George Abrams are being removed as trustees of the board that will have voting control over both companies.

An all-out war has broken out for control of Viacom and CBS.

Sumner Redstone has booted Viacom chairman Philippe Dauman and board member George Abrams as trustees of the trust set to take over voting control of the media companies when the ailing Redstone, who will turn 93 on May 27, dies or is declared incapacitated.

The stunning move apparently came via fax from Redstone, who informed the two men he is replacing them both as directors of National Amusements, the family holding company that controls Redstone's 80 percent voting stake in the two media companies. He also removed them from the seven-person trust that will take over when Redstone is out of the picture.

Dauman, a longtime Redstone confidant and his personal lawyer before taking the reins of the parent company of Paramount, MTV and Comedy Central, and Abrams, considered Dauman's ally, immediately fired back Friday night in a lengthy statement to The Hollywood Reporter:

"These steps are invalid and illegal," Dauman said through a spokesperson. "They are a shameful effort by Shari Redstone to seize control by unlawfully using her ailing father Sumner Redstone's name and signature. As she knows, and as court proceedings and other facts have demonstrated, Sumner Redstone now lacks the capacity to have taken these steps. Sumner Redstone would never have summarily dismissed Philippe Dauman and George Abrams, his trusted friends and advisors for decades."

Shari, Sumner's 62-year-old daughter, recently has taken a leading role in her father's life after years of estrangement. She is known to be displeased with Dauman's leadership, and removing Dauman and Abrams would give her apparent control of the trust and accordingly, the fates of both Viacom and CBS. As Shari is believed to be allied with CBS chairman Leslie Moonves, the immediate battle now focuses on control of Viacom.

Shari responded in a brief statement to THR on Saturday morning: "I fully support my father's decisions and respect his authority to make them."

The latest development in the Redstone saga comes after Sumner (presumably with Shari's support) retained Los Angeles attorney Michael Tu, who confirmed to Fortune (which first reported the move) that he is representing the mogul "with respect to certain matters."

"Sumner Redstone took decisive and lawful action today which he firmly believes is in the best interests of Viacom Inc. and its stockholders when he removed Philippe Dauman and George Abrams as trustees of his Trust and directors of National Amusements, Inc.," said Tu in a statement to THR on behalf of Redstone. "Mr. Redstone acted after he expressed his concerns regarding Viacom's performance to Messrs. Abrams and Dauman, both Viacom directors, and received no response from them. The public statement made on Mr. Dauman's behalf attacking Mr. Redstone's capacity is disappointing and incorrect, as reflected by Mr. Dauman's own testimony given under oath less than six months ago that Mr. Redstone is as 'engaged, attentive and as opinionated as ever.' That is exactly the Sumner Redstone who made these decisions today. "

In February, Sumner stepped down from his role as executive chairman of CBS and was succeeded by Moonves with Shari's support. At Viacom, Sumner was replaced as executive chairman by Dauman over Shari's objections.This past week, the Viacom board voted to end Sumner's annual salary.

This new development raises many questions. Will Sumner and/or Shari Redstone now move to seize control of Viacom and remove not only Dauman but a board of directors that has stood unquestioningly behind him? Will Dauman move to have Sumner declared incompetent?

Wall Street is paying close attention. Viacom's stock has been pummeled during the past year, losing more than 40 percent of its value and wiping some $12 billion from the media giant's market cap.

Eric Jackson, the activist shareholder who this year released a 99-page report detailing what he called a "lost decade," after Viacom and CBS split into two separate companies, believes the maneuvering by Shari Redstone will have an instant impact on the cable television giant. Her move could signal a new and aggressive campaign to gain control of the Viacom board, and potentially even find a path to boot Dauman from the CEO job that he's held since 2006.

"We've said from the moment we released our report back in January that there is no single action Viacom could take to improve its stock price [more effective] than removing Philippe Dauman," said Jackson, managing director of New York hedge fund SpringOwl Asset Management. "We believe the action tonight is the first step toward that outcome."

As for Shari Redstone stripping Viacom's board of its power, Jackson said, "I'm not sure. It probably depends on what they do in the coming weeks. They should remember they serve the shareholders, and do what is right to increase the value of Viacom. They're not there to fatten Dauman's wallet."

To some degree, both sides are delicately situated. The Redstone father and daughter just won a victory over Sumner's former companion, Manuela Herzer, when a Los Angeles court determined that Sumner had been of sound mind when he dismissed Herzer as his healthcare proxy (and changed his will to exclude her). But the standard of competency to make decisions regarding corporate governance is higher than that for managing personal affairs.

In recent months, Dauman has made public statements regarding Sumner's support for his leadership of Viacom and relayed conversations with the mogul in which he described the frail billionaire as engaged and alert — this in contradiction to Herzer's assertions that Redstone was "a living ghost." Now Dauman will have to argue that sometime in the past few months, Redstone segued from being competent enough in February to encourage him to attempt to sell a stake in Paramount — a sale that Sumner subsequently was reported to have vocally opposed — to weeks later being incompetent to eject him.

The stunning rebuke also comes just two days after Viacom's board voted to entirely eliminate Sumner Redstone's $2 million salary as chairman emeritus. Dauman took over the official chairman title in February, around the same time that Moonves did the same at CBS as part of a power transition at both companies.

Both of the appointments came amid Redstone's trial ramping up in a Los Angeles court, where the mogul's past sexual proclivities have become a distraction for the media world and Wall Street investors. Not only is Sumner Redstone battling his former girlfriend in court, but he's also dealing with the fallout from a series of leaked recordings he allegedly made arranging sexual trysts for him and other Hollywood friends.

On Saturday, a Viacom spokesperson responded with the following statement to THR: "The actions taken yesterday in Sumner Redstone's name are completely inconsistent with his long expressed wishes and intent and extremely disruptive and damaging to Viacom and all its shareholders. There has been no communication from Sumner Redstone. In fact, during an in-depth strategy session of Viacom's board Tuesday evening and all day Wednesday, not a sound was heard from Sumner, who was connected by phone. Shari Redstone, also connected by phone, did not raise a single concern during the board session on any topic."

The Viacom statement continued, "The only contact was a written communication on Tuesday from Mr. Tu, a lawyer previously unknown until this week to anyone associated with Sumner other than Shari Redstone. It is clear that Shari Redstone has isolated her father and put his residence on lockdown, which provides clear evidence of her exercise of undue influence. Despite many attempts by members of Viacom's board, including the lead independent director, to meet with Sumner, they have been denied access. Mr. Tu, when asked by the board's independent counsel in response to Mr. Tu's letter, could not even confirm he has met Mr. Redstone. The picture is quite clear, Mr. Redstone is being manipulated and used by his daughter in an attempt to accomplish her long-held goal, which Mr. Redstone has always opposed, of gaining control of National Amusements and Viacom."

Viacom's official statement was followed hours later by individual statements from Viacom's lead independent director, Frederic Salerno, and Viacom director George Abrams.

Salerno stated, "In March, the Board of Viacom elected me to serve as Lead Independent Director to ensure a continuation of good governance at Viacom, particularly as a result of Sumner Redstone’s diminished role. The majority of the full Board and every Board Committee is comprised of independent directors and we are completely focused on ensuring that the interests of all shareholders are considered and fully protected. The Board has taken a number of steps including, most recently, eliminating Mr. Redstone's compensation. We took this action based upon his recent complete lack of communication with the Viacom Board and management team and his silence during recent board meetings, as well as recent public disclosures raising concerns about his health. In addition, despite numerous requests, I, along with the Chair of Viacom’s Governance and Nominating Committee, have been denied access to Sumner for a face-to-face meeting."

The lead independent director continued, "The Independent Directors are fully engaged and will carefully monitor actions at National Amusements, which is the controlling shareholder of Viacom. We are also continuing to work closely with the management team of Viacom and we fully endorse the strategy for the future of Viacom that the team presented at the Board’s day-long strategy meeting this week," he stated, adding, "We have great respect for Sumner and what he has accomplished. Our overarching duty is to represent the interests of all shareholders — in the same spirit that Sumner Redstone always led our Board to do. We will continue to fulfill that role and uphold our fiduciary responsibility to ensure that Viacom’s interests are protected in concert with good governance practices."

Abrams' statement read: "I have known and represented Sumner Redstone for over 50 years. I worked closely with him on the building of his theater chain, the acquisitions of Viacom, Paramount and CBS and countless business matters relating to all three of those entities as well as National Amusements. I have also handled many personal matters for Sumner. Above all, he is my friend. The Sumner Redstone I knew would never have taken this action. What is going on now is unsettling and sad.”

May 21, 8:47 a.m. Updated with statement from Viacom.

May 21, 11:23 a.m.: Updated with statement from Shari Redstone.

May 21, 1:06 p.m.: Updated with statements from Frederic Salerno and George Abrams.